Using the basic circular flow model, explain why the value of businesses output of goods and services equals the income of ho

Unit 5 Homework Assignment 

Homework Assignments: 

  • Prompt: Complete the unit homework questions below and submit them.
  1. Using the basic circular flow model, explain why the value of businesses’ output of goods and services equals the income of households.
  2. An economy produces final goods and services with a market value of $5,000 billion in a given year, but only $4,500 billion worth of goods and services are sold to domestic or foreign buyers. Is this nation’s GDP $5,000 billion or $4,500 billion? Explain your answer.
  3. Explain why the government spending (G) component of GDP falls short of actual government expenditures.
  4. Which of the following are counted in this year’s GDP? Explain your answer in each case.

A.  Flashy Car Company sold a used car.

B.  Juanita Jones cooked meals for her family.

C.  IBM paid interest on its bonds.

D.   José Suarez purchased 100 shares of Microsoft stock.

E.  Bob Smith received a welfare payment.

F.  Carriage Realty earned a brokerage commission for selling a previously owned house.

G.  The government makes interest payments to persons holding government bonds.

H.  Air and water pollution increase.

I.  Gambling is legalized in all states.

J.  A retired worker receives a Social Security payment.

5. Why is frictional unemployment inevitable in an economy characterized by imperfect job information?

6. Is it reasonable to expect the unemployment rate to fall to zero for an economy? What is the relationship of frictional, structural, and cyclical unemployment to the full-employment rate of unemployment, or natural rate of unemployment?

7. Speculate on why teenage unemployment rates exceed those for the overall labor force.

8. Suppose, in the base year, a typical market basket purchased by an urban family costs $250. In Year 1, the same market basket costs $950. What is the consumer price index (CPI) for Year 1? If the same market basket costs $1,000 in Year 2, what is the CPI for Year 2? What was the Year 2 rate of inflation?

9. Who loses from inflation? Who wins from inflation?

10. Suppose the annual nominal rate of interest on a bank certificate of deposit is 12 percent. What would be the effect of an inflation rate of 13 percent?

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